Effects of jump-diffusion models for the house price dynamics in the pricing of fixed-rate mortgages, insurance and coinsurance

Calvo-Garrido, María-del-Carmen; Vázquez, Carlos

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http://hdl.handle.net/2183/35187

Effects of jump-diffusion models for the house price dynamics in the pricing of fixed-rate mortgages, insurance and coinsurance

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Calvo_Garrido_MC_2015_Effects_of_jump_diffusion.pdf (645.29 KB)

Identifiers

URI: http://hdl.handle.net/2183/35187

DOI: 10.1016/j.amc.2015.09.051

Publication date

2015

Authors

Calvo-Garrido, María-del-Carmen

Vázquez, Carlos

Bibliographic citation

Calvo-Garrido, M. d. C., & Vázquez, C. (2015). Effects of jump-diffusion models for the house price dynamics in the pricing of fixed-rate mortgages, insurance and coinsurance. Applied Mathematics and Computation, 271, 730-742. https://doi.org/10.1016/j.amc.2015.09.051

Abstract

[Abstract] In the pricing of fixed rate mortgages with prepayment and default options, we introduce jump-diffusion models for the house price evolution. These models take into account sudden changes in the price (jumps) during bubbles and crisis situations in real estate markets. After posing the models based on partial-integro differential equations (PIDE) problems for the contract, insurance and the fraction of the total loss not covered by the insurance (coinsurance), we propose appropriate numerical methods to solve them.